The Psychology Behind Non-Fungible Token (NFT) Market Movement
A trio of studies published in November may shine some light on the social and psychological factors that motivate movement in the non-fungible token (NFT) market. These studies, conducted by researchers from Western University, Tilburg University, the University of North Carolina at Chapel Hill, and Rennes School of Business, provide valuable insights into the motivations behind NFT market participants.
Study 1: “On Non-fungible Tokens, Blockchain Hypes, and the Creation of Scarcity”
In the study titled “On Non-fungible Tokens, Blockchain Hypes, and the Creation of Scarcity,” Guneet Kaur Nagpal and Luc Renneboog examined the market dynamics of “Crypto Punks,” a popular series of NFT assets. The researchers found that buyers who were already invested in Ethereum, the blockchain on which CryptoPunks assets reside, were more likely to engage in the market at higher costs and also saw higher gains. The study also established that the creation of rarity determined pricing for CryptoPunks assets.
Study 2: “Personal Experience Effects across Markets: Evidence from NFT and Cryptocurrency Investing”
In another study titled “Personal Experience Effects across Markets: Evidence from NFT and Cryptocurrency Investing,” Chuyi Sun analyzed transaction-level data from approximately one million wallets to study how personal experiences contributed to bubbles in the NFT market. The study found that NFT investors who randomly received more valuable NFTs in the primary market were more likely to participate in subsequent primary market sales. These investors were also more likely to purchase “lottery-like” cryptocurrencies in the future.
Study 3: “The Impact of Experience, Overconfidence, and Optimism on Future Cryptocurrency Ownership”
Akanksha Jalan and Roman Matkovskyy conducted a study titled “The Impact of Experience, Overconfidence, and Optimism on Future Cryptocurrency Ownership,” which delved into the dynamics surrounding investor optimism and its effect on the cryptocurrency and NFT markets. Surprisingly, the study found that negative past experiences and investor optimism both positively affect the odds of future cryptocurrency and NFT ownership. The authors suggest that this may be attributed to a self-serving bias, where investors attribute their losses to external factors rather than poor decision-making.
Conclusion
These three studies provide valuable insights into the motivations and behaviors of participants in the NFT market. They highlight the importance of personal experiences, luck, asset scarcity, and investor optimism in driving market movements. Understanding these psychological factors can help investors and market participants make more informed decisions in the ever-evolving NFT space.
